Smoke and Mirrors: Phoenix Cigar and Liquor Store Sues State of Arizona Over Smoking Ban

By Christian Palmer

Mahendra Kumar Patel and his son Amar stand in front of the latest addition to their north central Phoenix luxury cigar, wine and liquor store: an extravagant bar with dark-wood furniture and soft white lighting that illuminates the contents of hundreds of the world’s finest single-malt scotches, whiskies, cognacs and tequilas.

“If we had known we couldn’t smoke here…,” said Mahendra Patel, part-owner of Magnum’s Cigar, Wine and Liquor Emporium. “Then why would we do this?” asked Amar Patel, finishing his father’s thought. “How stupid would that be?”

“We don’t serve Budweiser,” said Amar Patel, a partner in the business who had two cigars poking from the breast pocket of an immaculate white shirt. “And we don’t serve Coors Light. We don’t serve Miller. We serve fine Belgium ales and German brews and American microbrews. Our well vodka is Grey Goose.”

And we can legally smoke here

Amar Patel and his father are serving something else not found in the supple, leather-bound drink menus: a lawsuit targeting the Arizona Department of Health Services, which it accuses of going back on its previous findings that Magnum’s is exempt from the Smoke- Free Arizona Act, the 2006 ballot initiative that banned smoking in most public places.

The lawsuit and a request to immediately stop the department from issuing citations were filed Feb. 8. Both accuse DHS of directly violating the law’s provisions and taking illegal and secretive steps to issue a final policy to ban smoking in tobacco shops that also offer food, beverages or alcohol.

The business owners claim the language of the initiative exempts businesses such as Magnum’s from the smoking ban if they derive a majority of sales from tobacco products and accessories and maintain physical separations that prevent smoke from moving into other areas that the law mandates as smoke-free zones.

51 percent of revenues from tobacco and accessories

A casual shopper passing through the store and adjacent bar might be hard-pressed to believe the large walk-in humidor with fine cigars and the small, somewhat hidden kiosk for cigarettes make-up for more than 50 percent of the family-operated business.

The demarcated shopping area holds tall diagonal rows with thousands of bottles of wines and fine liquors. A long shelf features about 800 types of beers. But the money is indeed in the cigars and accessories, Amar Patel said.

Cuban cigars rolled before Fidel Castro’s 1959 takeover of the island — and the ensuing U.S. embargo — can be purchased for $900. Custom-made desktop humidors by craftsman John Harper start at $7,000. One recently sold for $30,000, while a set of three lighters, a cigar cutter and two pens by French designer S.T. Dupont fetched $17,500, Amar Patel said.

And that doesn’t count the 48 members that plunk down $500 a year to store and age cigars in private cases in Magnum’s humidor, one of the largest in the state. About 25 people are waiting in line for that privilege, which Amar Patel estimated will take between two to three years.

Building the bar

According to the lawsuit, in March of 2007 state health department personnel on numerous occasions stated the Patels’ plans to expand the business to serve alcohol, and possibly food, would be legal under act’s provisions and department guidelines.

An amended complaint against the department states that Mahendra Patel relied on compliance information given by the department in December 2006, and again in January, March and April of 2007.

“It was such an open-and-shut case, such a black-and-white issue,” Amar Patel said. “They gave us the guidelines to follow and we followed them.”

The expansion plan had been delayed twice before; once by the city of Phoenix to see if the Smoke-Free Act would be approved by voters, and again to allow the state Health Department time to issue implementation guidelines.

Both the city Planning Department and the state Health Department independently agreed the plans fully complied with the act, and a permit to start construction in May 2007 was issued, according to the lawsuit.

The project was originally estimated to cost $200,000, but that figure more than tripled after delays, redesigns and additional labor and materials needed to comply with the guidelines requiring physical separation and independent ventilation.

Complying with the guidelines was not an easy task. Hired architects and engineers considered whether to set two large air- conditioning units on the roof or four smaller units to avoid a threat to the “building’s integrity,” Amar Patel said. He said the bar’s circulation power was boosted by the addition of two large “Smoke Eaters” and a “massive exhaust system.”

“Normally, a bar (of this size), according to our architect, would require 4,300 cubic feet of air,” Mahendra Patel said. “This one has 14,000.”

A front door was removed and replaced with a wall to comply with distance requirements. The sheetrock from the floor to ceiling to prevent smoke seepage is even backed with plywood, the Patels said.

“Thanks to everyone”

The bar opened in August 2007, around the same time the department began closely examining how to stop smoking in stores such as Magnum’s, as shown in e-mails obtained by the Patels’ attorneys.

“We are pursuing a resolution through the AG’s (Attorney General) office,” Don Herrington, the DHS Bureau Chief for Epidemiology and Disease Control, wrote to department employees and county health officials. “We haven’t found an absolute yet, but the current thinking is that we may use permitting/licensing as a key. Retail smoke shops are not required to have any specialized license, such as a liquor or food permit/license. They are only required to have a general business tax license. Hence we are thinking that a way to approach this is to say, ‘If you (a place of business) have any other specialized license, you do not qualify as a retail tobacco store.’ This will stop the bars and restaurants, but what about the auto-parts stores, or any other businesses that do not require a specialized license?”

A follow up e-mail on Sept. 12 from DHS’ Smoke-Free Arizona Program Director Brigitte Dufour informed department employees and several assistant attorneys general that a substantive policy statement in the works may be applied to retail tobacco stores that sell food and beverages.

In the message, Dufour, who did not return calls for comment, estimated 13 of 26 known cigar bars will be affected, as will all of the 25 identified “hookah bars.” The e-mail also instructed a subordinate, Harmony Duport, to begin compiling a list of all retail tobacco stores and hookah bars. Later the Department of Revenue was asked to assist with the task.

Herrington replied with enthusiasm to the news of the possible implementation of a policy to forbid smoking in establishments that serve food and beverages: “Great news! Thanks to everyone in the program for doing such a fine job.”

A lot in a name

“My jaw just dropped and my heart sank,” Amar Patel said, recalling his reaction last October when his father handed him a letter outlining the department’s newly adopted policy, which determined that a bar or restaurant cannot be considered a retail tobacco store.

“The taxes are one thing and the smoking initiatives are one thing, but when did they (DHS) flip the script?” Amar Patel asked. “Unbelievable.”

Herrington acknowledges the October policy differs from the department’s guidelines issued in March, a period he described as an intense rush to translate the act and seek public comment and issue corresponding rules for implementation.

“If we said something that is inadvertent, that’s possible,” he said. “It’s quite possible that we put some stuff out in error and told people in error.”

The Patels charge that the department was aware that its “scheme to circumvent” the exemption would harm the state’s tobacco stores, which were obviously specific targets by the regulators.

The lawsuit and request for injunction, filed by attorneys Kraig Marton and David Ferren, also alleges the department broke the law on agency rulemaking by refusing to seek public comment, as well as failing to both circulate drafts of the rules and obtain the required signatures.

But Herrington said none of those steps were necessary because the clamp-down on retail tobacco shops was only a policy statement, which he views as an easier-to-understand translation of the initiative,

“It was a statute,” Herrington said. “We didn’t need to put a rule up. This was already defined, in our view, in the statute.”

And the policy, he said, is correct. The initiative defines a retail tobacco store as a business taking in a majority of its revenues from tobacco and related products, and creates an exemption for retail tobacco stores with physical separations from other public areas.

But it also defines a “public place” to include bars, restaurants and retail stores, along with airports, banks and shopping malls, he said.

The department’s assumption that a bar or restaurant cannot qualify as a “retail store” is flawed because state law clearly defines “on-sale retailer” to mean “any person operating an establishment were spirituous liquors are sold,” and Magnum’s is licensed as an “on-sale retailer,” according to the filing.

Where there is a will, there is a way

Herrington would not disclose who approved the policy statement, but said the matter was brought up after businesses were discovered trying to negate the initiative’s effects by resorting to unusual tactics to qualify as retail tobacco stores.

One business sold cigarette rollers that came with free televisions, and bars were selling beer at drastically reduced costs while selling cigarettes for artificially raised prices, he said.

“We had some folks trying to deal cleverly with that,” said Herrington, who supervises employees of the Arizona Smoke-Free program.

But Herrington declined to comment on the lawsuit.

Michael Murphy, a DHS spokesman, said he could not comment on the lawsuit and referred questions regarding the policy adoption to the Attorney General’s Office, which also declined to comment.

Here come the inspectors

Though the policy went into effect on Oct. 2, county health inspectors following up on complaints viewed Magnum’s as exempt from the Smoke-Free Arizona Act at least three times during the month.

It was not until Nov. 15, roughly two weeks after Magnum’s attorney Marton issued the department a records request, that state health inspectors responsible for enforcing the act began enforcing the new translation of the law.

An inspection report from that day notes that the Patels were told by Smoke-Free Arizona employee Duport that smoking would not be allowed in their establishment.

Duport returned with Dufour, the program director, in late January to reiterate the policy, but were met with resistance by Amar Patel, who stated he disagreed that DHS had the authority to “modify the 51-percent requirement.”

Within a few days, the inspections came on a daily basis. Smoke- Free Arizona inspectors visited Feb. 6 when Amar Patel informed them of his intention to file a lawsuit and refused to sign their violation report.

A follow-up visit came the next day, and twice on the day after that, prompting Amar to complain of harassment.

Attorneys for the Patels then filed a verified complaint, a preliminary injunction and a request for a temporary restraining order to stop DHS from enforcing its policy, which is labeled a “blatantly abusive and illegal regulation.”

On Feb. 22 Maricopa County Superior Court Judge Richard Trujillo set an evidentiary hearing for Magnum’s request for a preliminary injunction, which seeks a determination that DHS’ interpretation of the Smoke-Free Arizona Act was erroneous.

Four days later, Trujillo set an oral argument for Feb. 29 to hear Magnum’s request to consolidate the preliminary injunction hearing with a trial on the merits of the case.

“We’re not some bar on the west side cutting a hole into the wall and saying, ‘Hey look, we’ve got ventilation,’” Amar Patel said. “I would not have spent this kind of money and said, ‘Let’s shoot for that loophole.’ How stupid would that be?”

Originally published by Christian Palmer.

(c) 2008 Arizona Capitol Times. Provided by ProQuest Information and Learning. All rights Reserved.